INVESTMENT

PROPERTY
INVESTMENT PROPERTY

 Property (land or building or part of a building or both) held by the owner

or by the lessee under a finance lese to earn rentals or for capital
appreciation or both.

 An equipment or any movable property cannot qualify as investment

property.

An investment property is not held:

• For use in the production or supply of goods or services

• For administration purposes.
• For sale in the ordinary course of business.
Examples of Investment Property

a) Land held for long-term capital appreciation

b) Land held for a currently undetermined use

c) Building owned by the reporting entity leased out under an

operating lease

d) Building that is vacant but held to be leased out under an

operating lease

e) Property that is being constructed or developed for future use as

investment property.
Partly investment and partly owner-occupied

 If portions could be sold or leased out separately, an entity shall account the
portions separately as investment property and owner-occupied property.

 If portions could not be sold separately, the property is investment property if

only an insignificant portion is held for manufacturing or administrative
purposes.

 When ancillary services (security and maintenance services to the lessees) are
provided by the entity to the occupants of the property and theses services are
a relatively insignificant component of the arrangement, the property is
treated as investment property.

 Owner-managed hotels is treated as owner-occupied property, rather than

investment property.
Property lease out to an affiliate

 From the perspective of the individual entity that owns it, the
property leased to another subsidiary or its parent is considered as
investment property.

 From the perspective of the group as a whole and for purposes of

consolidated financial statements, the property is treated as owner-
occupied property.
Initial measurement of investment property
 At cost, including transaction costs

 For purchased investment property

 Purchase price plus directly attributable expenditure
like:
o Professional fees for legal services
o Property transfer taxes
o Other transaction costs.
Subsequent measurement of investment property

 Fair value model – at fair value

 Integral part of the building like lift and air-conditioning is
included in the fair value of the investment property.
 Furniture in an office that is leased on a furnished basis is
included in the fair value of the investment property.

 Cost model – at cost less any accumulated depreciation and

any accumulated impairment loss.
ILLUSTRATION:

Mirabuna Company ventured into construction of a condominium in Batangas which is

rate as the largest state-of-the-art structure. The board of directors decided that instead
of selling the condominium, the entity would hold this property for purposes of earning
rentals by letting out space to business executives in the area.

The construction of the condominium was completed and the property was placed in
service on January 01, 2021. the cost of the construction was P 50,000,000.

The useful life of the condominium is 25 years and the residual value is P 5,000,000.

An independent valuation expert provided the following fair value at each subsequent
year-end:
12/31/2021 55,000,000
12/31/2022 53,000,000
12/31/2023 60,000,000
Cost model
2021 Investment Property 50,000,000
Cash 50,000,000
Depreciation Expense (50M – 5M / 25 yrs) 1,800,000
Accumulated Depreciation 1,800,000
2022
Depreciation Expense (50M – 5M / 25 yrs) 1,800,000
Accumulated Depreciation 1,800,000
2023
Depreciation Expense (50M – 5M / 25 yrs) 1,800,000
Accumulated Depreciation 1,800,000
Fair Value model
2021 Investment Property 50,000,000
Cash 50,000,000
Investment Property (55M-50M) 5,000,000
Gain from change in fair value 5,000,000
2022
Loss from change in fair value ( 53M-55M) 2,000,000
Investment Property 2,000,000
2023
Investment Property (60M-53M) 7,000,000
Gain from change in fair value 7,000,000
Measurement of transfer

1. When the entity uses the cost model, transfer between investment property,
owner-occupied property, and inventory shall be made at carrying amount.

2. A transfer from investment property carried at fair value to owner-occupied

property or inventory shall be accounted for at fair value which becomes the
deemed cost for subsequent accounting.

3. If owner-occupied property is transferred to investment property that is to be

caried at fair value, the difference between the fair value and the carrying
amount of the property shall be accounted for as revaluation of property, plant,
and equipment.
Measurement of transfer

4. If an inventory is transferred to investment property that is to be carried at

fair value, the remeasurement to fair value shall be included in profit or loss.

5. When an investment property under construction is completed and to be

carried at fair value, the difference between fair value and carrying amount
shall be included in profit or loss.
Cash Surrender Value

 Amount which the insurance firm will pay upon the surrender and cancellation
of the life insurance policy. Cash surrender value arises if the following
requisites are present:
a. The policy is life policy
b. Premiums for three full years must have been paid
c. The policy is surrendered at the end of the third year or anytime
thereafter.

 Classified as noncurrent investment.

 A loan value is the amount which the insured can borrow from the insurance
firm with the cash surrender value as collateral security.
 The loan shall not be deducted from cash surrender value but accounted for as
an ordinary obligation.
Accounting procedures for cash surrender value
a. Payment of the insurance premium
Life insurance Expense xxx
Cash xxx
b. Adjustment of any unexpired premium at the end of the period
Prepaid life insurance xxx
Life insurance expense xxx
c. Dividends received on the life policy are not income but a reduction of life insurance expense
Cash xxx
Life insurance expense xxx
d. Initial recognition of the cash surrender value at the end of the third year
Cash Surrender value xxx
Life insurance expense xxx
Retained Earnings xxx

*portion of the cash surrender value applicable to the current year is credited to life insurance
expense and that portion applicable o the prior years is credited to retained earnings.
Accounting procedures for cash surrender value
e. Recognition of increase in cash surrender value subsequent to the third year
Cash surrender value xxx
Life insurance expense xxx
f. Receipts of the proceeds of the life policy.
Cash xxx
Cash surrender value xxx*
Life insurance expense xxx**
Gain on life insurance settlement xxx***
*The amount to be credited to the cash surrender value should be the adjusted balance at the time of
death of the insured.
**The life insurance expense account is credited for the unexpired premium at the time of death.
*** Face of the policy xxx
Less: Cash surrender value xxx
unexpired premium xxxxxx
Gain(Loss) on life insurance settlement xxx